Friends have been asking lately what I think of the health care bill, now that it has passed (and bears no resemblance to my own health care reform plan). Of course, like the legislators who voted it into law, I have not read the 1000 pages and truly have no idea what the intended and unintended implications might be. But I do get the main point: as a society we will be spending an extra $1 trillion on health care that we wouldn’t have spent previously. This is the part that strikes me as a non sequitur to the debate.

For the past few years we’ve been hearing about how inefficient and ineffective the American health care industry is. We spend ten times as much per capita as Mexico, for example, and achieve a similar life expectancy. We spend two or three times as much per capita as a lot of industrialized nations, are less healthy, and are tortured by paperwork and bureaucracy. If you heard about an industry that was this uncompetitive internationally, the next thing that you’d expect to hear would be “and this is how it is moving offshore” or “and that is why people are choosing to spend less money on this service.”

The logical punchline to the health care discussion should have been “The U.S. health care industry has not been able to deliver most services in an affordable way, so it is going to concentrate on emergency care and simple checkups and screening tests. Ambulatory patients who require surgery will walk into their local airport instead of their local hospital. A Boeing 747 [a product that we are pretty good at making] will take them to a country where they’ve figured out how to take care of people without bankrupting them.”

It is odd that Americans seem intent on believing that we can somehow “fix” our health care industry through clever command-and-control bureaucracy sitting at desks in Washington, D.C., and that this question is worthy of national debate. Imagine if we were buying flat-screen televisions, PCs, and mobile phones made in the U.S. by government and insurance company contractors. An average family’s consumer electronics budget would now be $100,000. Would it be worth debating why these companies needed to charge $100,000 for something that could be purchased from overseas for $2,000? Or would it be more productive simply to import those goods and concentrate on doing other things in the U.S.?

So… for those who have asked. My reaction to the health care bill is bewilderment. We heard all about how much money the U.S. health care industry was wasting. Then our political leaders decided to give the industry an extra $1 trillion. The money is coming from tax increases, so presumably it is being diverted from products and services that American consumers would willingly purchase from efficient and competitive suppliers.

[There does seem to be precedent for this. We heard about how Wall Street and Fannie Mae executives exposed their shareholders to enormous risks so that they could have a chance at earning billions of dollars in bonuses. The industry was fully exposed as a means of transferring shareholder wealth into employee pockets. Plainly shareholders would have been better off investing in German and Chinese financial services firms. The seemingly logical response to the situation would have been to let the insolvent Wall Street banks disappear and be replaced by prudently managed American and foreign banks (this would have required no government intervention). What did Congress and the Federal Reserve Bank do instead? Toss trillions of tax dollars onto the Wall Street bonfire (see my review of It Takes a Pillage).]

23 Comments

As always, it seems obvious when you put in this way. I would like to point out that it’s actually only $500B in tax increases. About half of the bill’s funding comes from cuts to Medicare, so, in that sense, it’s only re-appropriating existing taxes.

I can see some logic in this bill, though. Health is funded entirely through insurance in this country. People without insurance really have no options for serious treatments (the retail price of most procedures is usually 10x what an insurance company would pay). So, getting more people in the system in a free market would reduce inefficiencies. More on this later.

Another point to it is that nobody really doubts the actual provision of health care in this country. Once a patient is in a hospital, our doctors and nurses do a very good job of providing care. The problem is entirely in getting patients into the hospitals and doctors offices, and paying for their treatments once they’re out. Perhaps a radical enough shake-up to the paying-for part of the system could be enough to improve it.

Of course, the existing bill does neither of the above two things, though it certainly looks to a politician that it does. The former point fails because health insurance is not a free market. Health insurers are exempt from antitrust laws, and in most states one insurer covers 80% or more of the market, making their pricing within arms reach of monopolistic.

The latter point fails because this bill does precious little to actually change the nature of health payments, it just forces a few million more people into the existing broken system, and then provides some partial subsidies to help those that are poor pay for it.

The ultimate politician’s folly here is that, even though all of the explicit tax increases in this bill are on the almost-rich (family incomes >$250K), the real financial burden will again fall on the poor. Everyone will be forced to purchase health insurance. For an almost-poor family (as in, poor, but above the federal poverty guidelines), the available subsidies will be much less than the premium for their qualifying plan. So, they will be forced to buy a health plan or pay the tax penalty. Both will essentially be the same for this family, as their health plan would have high enough deductibles that they wouldn’t be able to afford to use it anyhow. In effect, this bill will be taxing the poor at a lower percentage rate, but at a much higher human cost in terms of lost marginal utility of their money. This will decrease the tax base, as there will be less money to spread about the base of the economy, which will in turn hurt the rich by decreasing investment incomes.

Still, despite everything logical I see wrong with the bill, I’m guardedly optimistic. Our plan is very similar in design to Switzerland’s, and it seems to be working very well for them. Maybe there’s something about the health care industry that defies the usual rules of the market? The lack of rational actors involved in decision making, perhaps? (People will always buy whatever health care they can to keep themselves alive, even when the cost of that care far exceeds the income that person would make if they remained alive).

Max

Agree completely. If the US prides itself as a market economy, health care would be a great start to show that markets can work. I think it could work if:

- Prices have to be published (this is a government regulation I agree with).
- Prices have to be the same for every customer independent of insurance status.
- all quality numbers of providers have to be published (another regulation)
- all results of medical studies have to be published
- some kind of standardization has to happen so people can actually compare medical products

JP

So how do you feel about Healthcare workers? Is it a good time to begin a fledgling career here, or would one be better off with something still in the private sector? Seems like Y combinator should start turning out nurses or something. How do we solve this? Vote Philg in 2012?

JP: A career in a government-sponsored industry such as health care should always provide a better risk-adjusted return than a career in private industry. Medicare/Medicaid provided a huge boost to the incomes of health care workers overall, even those who don’t treat Medicare or Medicaid patients (since many health care workers are taken up with these patients, that leaves fewer doctors and nurses competing to treat those paying via some other means). Perhaps a person of truly exceptional talent would be better off somehow in private industry, but a lot of young people erroneously believe themselves to be exceptional.

Phil, have you found a place to view the 1,000 pages of the thing? I’ve searched at length, but in vain.

I’m interested to look at the specifics of some of the generalizations I’ve heard, such as insurance being mandatory. I’m a US citizen not living in the US, so I’m wondering whether I’ll be forced to purchase insurance that I have no possibility to use. It would fall in line with my US taxes, which are as high as if I lived in the US and I’m forced to pay, even though I have no possibility to use the vast majority of services our taxes are taken to pay for.

(But let’s not forget that no matter how the Mastercard-commercial spoof starts…. say “Your fair share of taxes: all your money” or “Government-procured toilet seat: $1,247.23″ or “Three-year study into mating habits of strain-14B-3 worm larve: $500,000″, it always ends with “Holding an American passport: priceless“)

“But I do get the main point: as a society we will be spending an extra $1 trillion on health care that we wouldn’t have spent previously. This is the part that strikes me as a non sequitur to the debate.”

That spending is in large part to add an additional 30 million citizens into health insurance coverage. Universal coverage was the overarching goal of this legislation; Rationalization of health care coverage was a close second.

“Would it be worth debating why these companies needed to charge $100,000 for something that could be purchased from overseas for $2,000? Or would it be more productive simply to import those goods and concentrate on doing other things in the U.S.?”

As provision of care is not easily off-shored, at least in a satisfactory manner, perhaps you can look at the legislation as attempting to import from other successful industrialized nations a superior mechanism for providing broad coverage. Like Germany, Switzerland, and the Netherlands:

“We heard all about how much money the U.S. health care industry was wasting. Then our political leaders decided to give the industry an extra $1 trillion.”

The new law gives significantly more power to contain costs where government payments (Medicare and Medicaid) are directly involved. It also funds many pilot programs to determine where major cost savings can be found in the future.

“The seemingly logical response to the situation would have been to let the insolvent Wall Street banks disappear and be replaced by prudently managed American and foreign banks (this would have required no government intervention).”

Seemingly and actually are two very different things. The government essentially acted to ensure counterparties to the highly leveraged Wall Street firms and other leveraged institutions were made whole, at a cost (sometimes significant) to the Wall Street firms and their shareholders. This was to assist in keeping the credit markets functioning, and to try to minimize the contagion effect into the “real economy” of tangible goods and services.

When it was possible to have a bank or firm bought out by a prudently managed bank, the government strongly encouraged that action (Countrywide, Bear Sterns, Merrill Lynch, WaMu, Wachovia etc.). They added sweeteners to those deals to get them done, but it wasn’t necessarily money down the toilet for the taxpayer (see the $7 billion return from Citi). Essentially the govt threw its weight (wallet) around to prevent people going crazy stupid at a time of serious crisis. But it would be helpful if they could act a bit more quickly the next time around…

“Would it be worth debating why these companies needed to charge $100,000 for something that could be purchased from overseas for $2,000?”

That’s not analogous to the debate we’ve had. The debate we’ve had, and that SierraTangoWhiskey is talking about above, is about who will pay the $100,000. There has been no debate about how to provide health-care services efficiently. There is only “debate” about who will pay the insanely inflated costs of the wasteful system we have now. The focus on insurance companies is a giveaway. Insurance companies don’t provide health care.

This mess is called “Health Care Reform”, but it’s really just a pile of crap about health insurance.

Retardo: I don’t believe that the health care bill is simply about shifting who is paying. Additional money will be diverted from other parts of the U.S. economy and put into health care. Perhaps it is only $500 billion rather than $1 trillion, but it is still money that we could have spent on something else. We did this in Massachusetts, remember, and we ended up with more people on health insurance and a lot more money spent overall on both insurance and care.

phil: I didn’t mean to suggest that costs wouldn’t go up. I was trying to say that as far as the debate has supposedly addressed reducing the excessive cost of health-care, people have instead merely been talking about shifting who pays.

“There’s no reason a TV should cost $10,000 — so we’ll make your neighbor pay the $10,000! Problem solved!”

That’s one kind of nonsense we’ve been hearing, about one of the issues. I certainly didn’t mean to suggest that it’s the only kind of nonsense being spouted.

Another point is that at the end of the day, roughly the same people will be paying as always: People with jobs. “Give people free stuff and make everybody else pay for it” stops working when the people getting free stuff ARE everybody. There’s no “everybody else” left (living in Cambridge, you’ve probably found yourself trying to explain that concept to a Democrat — surreal, isn’t it?).

Unless you borrow it all from the Chinese.

God, we’re screwed.

Pierre

I think you have very interesting points. It seems to me, though, that the majority of countries who are much more efficient than the US at delivering health care have arrived at that stage through government regulation which structured health care delivery and insurance differently.

Maybe this is why people believe that it is possible to fix the system through, as you say, “a clever command and control system”. It would certainly seem that some countries have been able to do it in that manner. What makes the US different in that it wouldn’t be possible here?

Vince

You wrote: “It is odd that Americans seem intent on believing that we can somehow “fix” our health care industry through clever command-and-control bureaucracy sitting at desks in Washington, D.C….”

Those other industrialized countries with health care systems that are significantly more efficient than ours (like Canada) mostly use centralized bureaucracies. In others, like Germany, the basic ground rules for the whole system are set by the national legislature.

In the US, the Medicare system, which is a DC-based bureacracy, is more efficient than the insurance companies. We also have something in thise country which could reasonably be called “socialized medicine”. It is the VA system and it is even more efiicient than Medicare. The hospitals are all federally-owned facilities and the doctors and nurses are all government employees. Part of the efficiency comes from the government using its purchasing power to negotiate lower prices for drugs medical supplies. Some of the efficiency also comes from IT systems.

Pierre, Vince: What makes the U.S. different is our non-parliamentary system of government, which greatly increases the potential for influence by lobbyists. Nearly all U.S. government programs end up turning into bonanzas for one industry or another, with the taxpayer the big loser. In a country such as Germany, a single party is accountable for what happens. In the U.S., nobody is accountable and therefore there is no disincentive for an individual politician to vote on behalf of a lobbying company or industry. Einsenhower’s original speech draft was supposedly “beware the military-industrial-congressional complex” and it was shortened to “military-industrial” to avoid angering Congress, but his original idea was that lobbying would be a key element in the ruin of the U.S.

Greg

Hubbert

Greg, what percent of the providers’ costs are related to wrangling with insurance companies? Philip and others have posted reports of the ratio of physicians to administrative staff in some clinics that were IIRC approaching or exceeding 1:1. Assuming that the 15% of the healthcare providers costs are insurance-related, the overall efficiency is 0.87*0.85, or 74%, meaning that the presence of insurance companiesl wastes 26% of what passes through their hands.

Chuck

Its 2310 pages (!) long, but its a huge font and probably only 1000 (?) if made in a normal font and all the row labels removed. I let you know my opinion in a few months when I finish reading it. I find it ironic that probably no one single individual has read the entire thing, and fewer understand it.

Thanks, Chuck, for the link. Just to follow up on my own question about Americans not living in the US, it’s covered on page 170 (and again on page 1226… the PDF seems to contain two copies of everything). In short, someone like me residing outside the country won’t have to pay the no-insurance tax, but someone who happens to be outside the country (say, someone backpacking around the world for the year) will.

How can rearranging the insurance of an inefficient care-delivery system yielding poor care possibly result in cheaper and better care? How could that possibly work?

I think it’s great that it will be high-risk pools that will make it harder to deny coverage to high-risk individuals. I think it’s great that some steps are being taken to eliminate the ripoffs in the individual- and small-plan markets.

But really, does this bill do anything at all to curb the erosion of standard-of-living being caused by the ever greater portion of GDP that health-care consumes?

Phil, you pointed out some time back that much of the debate was predicated on this folksy assumption that well-insured people are getting something of value and that the uninsured are getting less value. This bill seems to do a good job at fixing this perceived injustice, and plenty of people are busy high-fiving each other over this “victory”.

But what does it do to make the product, health care, cheaper and better?

Rob said: But what does it do to make the product, health care, cheaper and better?

You’re quite right to point it out. You’ll notice, some time 6-12 months ago, they stopped calling it “health care reform” and replaced it with “health insurance reform.” There is absolutely nothing in the bill that materially changes the provision of health care, just changes, proportionally minor ones at that, in how it’s paid for.

Maybe it will work out. As I noted above, there is precedent for such a system working.

Still, if you are of the opinion that the problem is in the inefficient provision of care, rather than paying for said care, this bill only makes the problem worse. It seems to me that we’re very, very good at performing individual tests and procedures and surgeries. The problem is that we provide those services to the wrong people. We prolong the lives of seniors so they can live, in pain, in hospital beds, for an extra six months before they pass away. Meanwhile, people in their thirties and forties have to wait months to get operating room time. I’m sure I’ll feel differently when I’m facing old age myself, of course.

If medicine were truly focused on improving the quality of life of the populate, rather than extending average life spans, we;d be spending much less on health care, and we’d be doing much better. The legal system, from both tort and regulatory perspectives, makes this impossible. Not to mention the fact that Americans tend to make unhealthy choices when it comes to diet and exercise and habits, compared to most other developed nations.

Scott Seigmund

My wife and I live in Tennessee and had blue cross blue shield insurance when the Tenncare program was created. The result for us was dramatic and steady rise in premiums as Tenncare losses were shifed to paying customers as BCBS of Tennessee was soon covering more than a million previously uninsured. Within 10 years Tenncare drive the State of Tennessee to brink of insolvency and the governor was had to force 170,000 people out of the program. More recently, Federal stimulus money has delayed the inevitable, and painful cuts, and reductions in services and payments.

Make no mistake. This Obama/Pelosi healthcare legislation is an entitlement program that will change our lifestyle and economic freedom.

If you want to understand what to understand more about Obama/Pelosicare, but don’t have time to read the bill, You can get all the information you need in 10 minutes here.

By the way maybe I am naive but I never realized that when the President is going around he needs six big choppers (Marine One) with him (plus everything else of course)… how much is going to cost all this health care touring/ mid term campaigning ?

AJ

I’m bewildered too – isn’t the additional cost due the fact that people will now be able to access health care who could never afford the insurance previously? How is this possibly a bad thing, unless you have an astonishingly callous disregard for the welfare of a large proportion of your fellow citizens?

AJ: First, let’s recognize that any extra government spending today will be paid for by our children and their children. We are using our voting power to take money away from future generations. If I borrow your car and donate it to charity, does that make me a kind-hearted charitable person?

Let’s assume for the moment that we were actually spending our own money. Spending more money on health care does not make society better off or even healthier. As I pointed out in http://philip.greenspun.com/politics/health-care-reform , the U.S. health care system is now so expensive that Americans would be healthier if it were simply eliminated (except for vaccines and pharmacies with antibiotics). Any product or service that requires people to spend 25 percent more of their time at work (typically sedentary) will make people less healthy.

If the U.S. had infinite money, everything that our current politicians are doing would make perfect sense.